US automaker's 'long march' for joint venture with China

By
Francine Kiefer, Business correspondent of The Christian Science Monitor /
June 14, 1983

Southfield, Mich.

''The beauty of China,'' says Ronald Gilchrist of American Motors Corporation , ''is that it is an excellent export base, but also has a very, very attractive domestic market with tremendous potential.''

Sounds like a great opportunity for any United States company. But it takes time and patience to strike a deal with a country not used to capitalist business practices.

Gilchrist, who looks somewhat boyish with his red cheeks and light hair, is manager of the company's Far East operations.

Last month, in Peking's Great Hall of the People and in the midst of much ceremony and honor, AMC officials signed a joint-venture contract with Beijing Automotive Works. AMC is putting $8 million in cash and $8 million worth of technology into the joint venture, which will make it one-third owner of Beijing Jeep Corporation, the new name for the operation. AMC will now provide components to upgrade a four-wheel-drive vehicle already being manufactured at the Peking plant. Later, Beijing Jeep will manufacture a version of the AMC Jeep. Production is scheduled for 20,000 vehicles a year.

For AMC the four years - one of them a waiting period while China reorganized its ministerial structure - were full of surprises.

''The areas where we expected traditionally to have the biggest problems went surprisingly smoothly,'' adds Tod Clare, vice-president for international operations. ''The areas where we expected almost a routine treatment turned out to be rather difficult ones.'' The AMC executives tick off a couple of contract clauses that are standard in ventures like this one, such as for force majeure (floods, earthquakes, or unusual economic conditions, etc., that make it impossible to live up to a contract) and arbitration. ''With the Chinese, we spent a lot of time talking about clauses that are standard everyplace. Arbitration was a big, big issue - in terms of what steps you go through.

''When you get the first two-thirds of a contract done, the last third is usually simple. In this case we never knew where we were going to come across a major issue,'' comments Mr. Gilchrist.

AMC had also entered the negotiations with a rough contract outline, drawn from other joint ventures. But the US executives found that the more they pursued their outline, the more difficult negotiations became.

''The Chinese were having a terrible time going to our format,'' Gilchrist recounts. ''The first breakthrough we made was when we threw (our outline) away and started going with their format. We tried to introduce our ideas within their format and we stopped trying to force our own outline . . . .''

Another sticky point: trademarks. Mr. Clare explained that Chinese use the word ''jeep'' generically - just as many Americans use the word ''xerox'' to describe photocopying. ''We were very, very protective of the Jeep trademark . . . . The Chinese had a difficult time understanding what the issue was,'' he explains. It took almost three years to register the Jeep trademark in China.

''Now China is very much in tune with the idea of a trademark,'' Clare adds.

On the other hand, he recalls, the Chinese made no issue of assets, a subject that can end up in long debate. Clare admits he thought negotiations would run into trouble when AMC discovered the company would end up with some assets it didn't want, such as a downtown service department. ''But the Chinese said, 'Oh, don't worry, we'll just lump that together and put it over here, and you can rent it for 20 years,' '' Clare continues, ''so the assets that were (finally included) ended up being the percentage we wanted. . . . Something like that would have been a big problem anywhere else in the world.''

The AMC executives said they had to adjust to a number of Chinese characteristics. One was attention to detail. ''In negotiating, some (Chinese officials) were very conservative, they didn't want to make a mistake,'' comments Gilchrist. The negotiations were often hung up ''on some unimportant word translation.''

The American executives were also surprised by the Chinese insistence on a detailed, seven-year financial feasibility plan. Clare says AMC normally plans three years out, and adds a couple of years of ''crude'' guesswork. ''I felt rather uncomfortable about that (seven-year plan), because that's really getting into the unknown.

''But they wanted seven years. We did seven years and we did an intelligent job with it,'' Clare adds. ''And as you look back, it's rather comforting to see the seven-year story in front of you.''

The long-term plan is just the tip of the central-planning iceberg in China. According to the AMC executives, everything from sales to energy consumption at the plant is established beforehand.

The planning factor was ''confusing'' for Clare and ''restricting'' in the eyes of Gilchrist. When things went wrong, ''central planning became the excuse for everything,'' Clare said. The Chinese, on the other hand, saw US economic troubles as the American ''excuse for everything,'' he added.

There were many pleasant surprises for the Americans, too. Clare says the Chinese are up to date in machine tools - a must for any manufacturing operation. He also says their economy is growing faster than planners thought it would. And the Chinese have ''a marvelous sense of humor and are very open people,'' Clare recalls. ''When you get a bit testy, you don't feel you've lost ground with them. It's an open and free thing.''

The two executives still think that, all things considered, this joint venture is not much different from others they have done. They really see themselves as bringing management and production systems to China - rather than products. And they also believe that they've charted unknown waters for other US companies.

''We learned a lot in four years, but so did the Chinese,'' says Gilchrist. ''The Chinese system is now much more prepared. . . . Our contract will serve as a prototype for joint ventures in the future.''